Can Eric Lefkofsky Save Groupon And Get His Net Worth Back Up To $4 Billion?

Eric Lefkofsky is the CEO and largest individual shareholder of online daily-deals company Groupon.

After Groupon's co-founder and former CEO, Andrew Mason, was dismissed, the company's board elevated Lefkofsky to interim CEO in February 2013. He was formally appointed CEO in August.

As of November 2013, the 44-year-old serial entrepreneur owns approximately 24% of Groupon. In other words, he controls roughly 159 million of the company's 665 million outstanding shares. At Groupon's recent closing price of $10.28, Lefkofsky's stake is worth around $1.6 billion.

Pretty awesome, right?

Unfortunately, Groupon has endured a very difficult two years. As excitement surrounding online daily deals peaked and then faded, Lefkofsky's net worth plunged from an all-time high of more than $4 billion to an all-time low of approximately $300 million.

It has since recovered significantly. Now firmly planted at the helm of Groupon, Lefkofsky is attempting to revive both the company's fortunes and the value of his personal stake.

Can he pull it off?

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Early Life

Eric Lefkofsky was born and raised in Southfield, Michigan, a suburb of Detroit. He was one of three children born to a structural engineer father and a schoolteacher mother.

Lefkofsky attended the University of Michigan, earning his bachelor's degree in 1991 and his law degree in 1993. While in college, he got an early taste of sales by taking a job selling carpets after being dumped by a girlfriend.

After completing law school, Lefkofsky and his friend Brad Keywell borrowed money from relatives to buy an athletic apparel company in Madison, Wisconsin, called Brandon Apparel.

The venture would become Lefkofsky's first major business failure.

The Collapse of Brandon Apparel

At first, Brandon Apparel appeared to be doing extremely well. After Lefkofsky and Keywell acquired the company, its annual revenue reportedly increased from $2 million to $20 million.

Unfortunately, that growth was not fast enough to keep pace with the company's ballooning debt. Brandon Apparel was heavily leveraged and eventually collapsed under the weight of its financial obligations.

The partners could not simply close the company and walk away. Brandon Apparel's failure generated a slew of lawsuits, including one filed by Johnson Bank. The bank sued Lefkofsky personally and won a default judgment of $11 million.

Other plaintiffs included the city of Columbus, Ohio, the state of Wisconsin, National Football League Properties, and Major League Baseball Properties.

Shortly before Brandon Apparel collapsed, the city of Columbus had loaned the company $750,000 to create jobs. The city was ultimately forced to write off the entire loan.

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Starbelly and Ha-Lo Industries

In 1999, Lefkofsky and Keywell launched another company together called Starbelly.

Starbelly was an early internet business that specialized in promotional products such as coffee mugs, T-shirts, and pens. Unlike Brandon Apparel, the company quickly attracted investors and a potential buyer.

In August 1999, Starbelly raised $8 million at a valuation of $32 million. That valuation was extraordinary considering that the company was on track to lose $2.5 million after generating just $183,000 in revenue during its first six months.

Four months later, Ha-Lo Industries agreed to acquire Starbelly for an astonishing $240 million. Following the acquisition, Lefkofsky was named Ha-Lo's chief operating officer.

The timing was perfect for Starbelly's investors but disastrous for Ha-Lo.

Like many internet companies created before the dot-com bubble burst, Starbelly achieved rapid growth without establishing meaningful profitability. Ha-Lo, a 50-year-old promotional products company, paid an enormously inflated price for the business.

Ha-Lo earned $1 million in profits in 1999. By 2000, it was reporting a $64 million operating loss, driven in part by $8 million in payroll obligations connected to Starbelly employees and $40 million in amortization of goodwill from the acquisition.

In 2001, less than a year after purchasing Starbelly, Ha-Lo filed for bankruptcy. The collapse produced another round of shareholder lawsuits that took years to resolve.

InnerWorkings, Echo Global Logistics, and MediaBank

Lefkofsky did not take long to recover from Ha-Lo's bankruptcy.

In the fall of 2001, he co-founded InnerWorkings, a company that provided print-procurement services to mid-sized businesses. InnerWorkings completed a successful initial public offering in 2006, and Lefkofsky continues to serve on its board of directors.

As of 2013, InnerWorkings generates approximately $480 million in annual revenue.

In February 2005, Lefkofsky and Keywell founded Echo Global Logistics, a freight and transportation management company that used technology to streamline the shipping process. Echo completed its own successful Nasdaq IPO in 2009.

The pair followed Echo with MediaBank in 2006. MediaBank developed technology that allowed advertising buyers to manage planning, purchasing, accounting, and analysis through a centralized software platform.

Once again, Lefkofsky and Keywell had taken an established industry and attempted to modernize it using technology and the internet.

The Creation of Groupon

One of the standout employees at InnerWorkings was a young developer named Andrew Mason.

In 2006, Mason came up with an idea for a website called ThePoint.com. Lefkofsky believed strongly in Mason and invested $1 million to help launch the company.

The Point was originally designed to help groups of people organize around a common cause. The concept struggled to attract a large audience, but Lefkofsky and Mason eventually discovered that users were especially interested in joining together to receive discounts.

They simplified the concept, emphasized social sharing, and renamed the company Groupon.

Groupon became a massive success.

The company grew so quickly that it eventually rejected a reported $6 billion acquisition offer from Google. In October 2011, Groupon raised $950 million in private funding and distributed $810 million to employees and investors. Lefkofsky and his family received approximately $398 million.

Groupon's November 2011 IPO was the largest offering by a U.S.-based internet company since Google. The company raised $700 million by selling shares at $20 each.

Why Groupon Grew So Quickly

Groupon has been described as one of the fastest-growing companies in history, and with good reason. Its rise perfectly coincided with three major trends:

• The explosion of social media: Consumers were becoming comfortable sharing information and recommendations through Facebook and Twitter.
• A national desire to save money: Americans were tightening their budgets in the aftermath of the worst economic downturn in decades.
• Small businesses needed customers: Local restaurants, retailers, spas, and service providers were desperate for new ways to generate sales.

Groupon started with a handful of employees and eventually grew to employ more than 3,000 people around the world.

For a brief period, it appeared that Groupon had created an entirely new category of internet commerce.

Groupon's Collapse

Unfortunately, Groupon's rapid rise was followed by an equally dramatic decline.

After rejecting Google's $6 billion offer, Groupon's executives briefly appeared brilliant when the company went public at a market capitalization of more than $17 billion in November 2011.

At that valuation, Lefkofsky's net worth peaked at more than $4 billion. Andrew Mason's net worth briefly reached approximately $1 billion.

Over the next year, Groupon's share price fell off a cliff.

Consumers began to lose interest in daily-deal emails, while many local businesses concluded that heavily discounted promotions did not produce enough profitable, repeat customers.

Almost exactly one year after its IPO, Groupon's stock reached an all-time low of $2.76 per share. At that price, the entire company was worth less than $2 billion.

Lefkofsky's net worth fell to approximately $300 million, while Mason's stake was worth around $75 million.

Can Groupon Recover?

Groupon has made a moderate recovery from its all-time low.

As of November 12, 2013, Groupon shares are trading at $10.28. That gives the company a market capitalization of approximately $6.8 billion, slightly more than the Google acquisition offer it rejected two years earlier.

Lefkofsky's net worth has recovered to approximately $1.7 billion, while Andrew Mason's fortune has rebounded to around $350 million.

Personally, I remain skeptical about Groupon's long-term prospects. I rarely hear people talk about purchasing Groupons anymore, and I do not see nearly as many local businesses promoting them. From my perspective, the daily-deals trend appears to have come and gone.

Then again, I am not an expert, and stranger turnarounds have happened.

Can Groupon and Eric Lefkofsky prove the critics wrong? Let us know what you think in the comments below.